You are trading on behalf of a client in fairly large nominals of US bonds. The counterparties in these trades are often people just like you. There’s a commission associated with a client’s trade and there’s also the opportunity, when it arises, to make some extra money from imperfections in the market.
On this particular day you are looking for an opportunity to buy some bonds for a client. The way you have decided to do this is by selling some of their short dated position and buying a slightly longer dated maturity. The deal is quite complicated, but you are confident in your maths and having checked the numbers for the 10th time you decide to go approach a few other traders. As the deal will be OTC (over-the-counter) it is not through an exchange, rather it is directly with another trader and prices are provided by the trader based upon their own calculations. You approach a competitor firm’s sales team (as they often deal with these type of bonds) and, keeping your cards close to your chest, you ask for some prices. The price given seems exceptional and you ask the broker to check. He comes back – nope, its definitely right.
You decide to execute. Its in the client’s best interest and you secure a superb deal. You check your maths again, the numbers being quoted seem to be quite wrong and you have no doubt that the trader on the other side has made a mistake. You have an opportunity to trade again, this time on your account for your own profit.
What would you do? What ethical considerations would you give to your decision-making? Why? Why not?
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